Banking ETFs Are Moving While Construction ETF Lags

Investors seeking market exposure to the housing market and banking system can buy individual stocks or by trading these three exchange-traded funds. Given strong gains in November, look for key levels at which to reduce holdings and book some profits.

The iShares U.S. Construction ETF (ITB) consists of 44 stocks involved in home construction and homebuilders. D R Horton (DHI) and Lennar (LEN) are the largest components with weightings of 12.02% and 10.38%, respectively.

The iShares U.S. Regional Banks ETF (IAT) consists of 54 bank stocks and super regional banks, US Bancorp (USB) and PNC Financial (PNC) are the top two holdings with weightings of 17.1% and 10.9%, respectively. Note that the four "too big to fail" money center banks are not components of this ETF.

The First Trust Nasdaq ABA Community Bank Index Fund (QABA) consists of 147 smaller banks with Signature Bank (SBNY) the largest component with just a 3.51% weighting.

Before we look at the weekly charts and key levels for these ETFs, let's look at the latest S&P Core Logic Case-Shiller Indices.

The key 20-city composite had a year-over-year seasonally adjusted rise of 5.1% in September, unchanged from the pace of August. The month-over-month gain was higher by 0.4% versus 0.2% in August. From the July 2006 peak to the March 2012 trough, prices were down 35.1%. From the trough to the current level home prices are up an unsustainable 43% and just 7.1% below the peak.

This chart above shows new home sales for October. New home sales declined in October to a seasonally-adjusted annual rate of 563,000 units, down from 574,000 in September. This chart clearly shows that the sales pace for new homes is significantly below potential.

The chart above shows existing home sales for October. This broader measure of home sales rose to a seasonally adjusted annual rate 5.60 million units up from 5.49 million units in September. Continuing a trend above the 5.5 million sales rate is the important milestone to track, as this level had been a ceiling since 2009, well below pre-crash levels.

Home prices appear to be too high relative to income growth, and mortgage rates are back above 4% from nearly 3%. This stress is noted in the drop of 9.4% in mortgage applications this week.